Opposition Brief — Lombardo v. United States (Nos. 87-1446, 87-1365, 87-1409, 87-1419, 87-1543)

©)

No. 87-1746

In the Supreme Co

OF THE

United States

OcTOBER TERM, 1987

ai

THE SOUTHLAND CORPORATION, RAY BERRY, TAL COLSON,

KeItH JENKINS, RoBERT DUNCAN, JOHN P. THOMPSON,

Jere W. THOMPSON, WALTON GRAYSON III,

Joseru S. Harptn, R.G. SmitH, EUGENE PENDER,

S.R. Doie, and Terry DE BARD,

Petitioners,

Vv.

RICHARD D. and Dara J. KEATING, MICHAEL M. AND

Goria G. Coy, and Harry BATTERSBY on behalf of

themselves and all other persons similarly situated,

Respondents.

RESPONDENTS’ BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

JOHN F. WeLLS*

Davip A. SCHURICHT

STARK, WELLS, RAHL, FIELD &

SCHWARTZ

Lake Mernitt Plaza

1999 Harrison Street, Suite 1300

Oakland, California 94612

Telephone: (415) 834-2200

Lise A. PEARLMAN

MILLER, STARR & REGALIA

One Kaiser Plaza, Suite 1600

Oakland, California 94612

Telephone: (415) 465-3800

Attorneys for Respondents

*Counsel of Record

May 1988

BOWNE OF SAN FRANCISCO INC + 1GO NINTH ST + SF. CA 94103 + (415) 864-2300

Vlas

2

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TABLE OF CONTENTS

Page

I -

sl ee ee God baer l

II

eA ceeds beh Ae Ek Kaede ney wee 3

A. There Is No Jurisdictional Basis for the United States

Supreme Court to Review the Order............. 3

1. The California Superior Court did Not Reach

The Federal Issue Posed by Southland, But

Rested Its Decision Upon Adequate and Inde-

pentent State Grounds ..................4.. 3

2. Southland Is Prohibited by California Law From

Changing Its Position From That Taken in the

GB EERE Sa a A eae a ee 6

3. The Order Is Not Final for Purposes of United

States Supreme Court Review............... 9

B. The Question Does Not Merit Review by This Court 11

ee ee ea gale es wee ews 13

ii

TABLE OF AUTHORITIES CITED

Cases 3

Page :

American Pipe & Construction Co. v. Utah, 414 U.S. 538,

38 L.Ed. 2d 713, 94 S.Ct. 756 (1974)............ wied: an 4

Bailey v. Anderson, 326 U.S. 203, 90 L.Ed. 3, 66 S.Ct. 66

| RRL Pipers wi Gp ren aia Ag (rad 4g a or 4

Belknap, Inc. v. Hale, 463 U.S. 491 (1983) ............. 10

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469, 43 L.Ed. 2d

po BA | SE ae 1]

Davis v. Edmonds, 218 Cal. 355, 23 P.2d 289 (1933)..... 7

Estate of Horman, 5 Cai.3d 62, 95 Cal.Rptr. 433, 485 P.2d

gj) eee es tp eer EA Soin, 6a). an 6

Gainey v. Occidental Land Research, 186 Cal.App.3d 1051,

ee ES Pe CED ooo ade kak pede ddtakaennas ix’ 9

Gen. Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 72

Le. 20 PO, 102 S.Ct 29646 (1982) .... 2.2.2.0. 12

Gore v. Bingaman, 20 Cal.2d 118, 124 P.2d 17 (1942) ... 7

Gulf Oil Co. v. Bernard, 452 U.S. 98 (1981) ............ 12

Henry v. Mississippi, 379 U.S. 443, 13 L.Ed.2d 408, 85 S.Ct.

6s ok oa va en EERE EES ee aS 7

Herb v. Pitcairn, 324 U.S. 117, 89 L.Ed. 789, 65 S.Ct. 459

| CREASY Mere Relate Malar 6 Var? sat Seely) oer 4

Izzy v. Mesquite Country Club, 186 Cal.App.3d 1309, 231

RE, WE RUD a v-f ss bs scat ohio bec kaeiaunes 9

Keating v. Superior Court, 31 Cal.3d 584 (1982) ........ 7

Lewis v. Prudential-Bache Securities, 179 Cal.App.3d 935,

Fae EB ED ind vere dee dad gndidaisun 9

Memphis Nat. Gas Co. v. Beeler, 315 U.S. 649 86 L.Ed.

oo ee a,’ 5 ae 4

Morris v. Zuckerman, 257 Cal.App.2d 91 (1967) ........ 12

Mutual Life Ins. Co. v. McGrew, 188 U.S. 291, 47 L.Ed.

er Fe Me 5 2 |) re 4

iil

TABLE OF AUTHORITIES CITED

CASES

Page

Nevceal Enterprises, Inc. v. Cal-Neva Lodge, Inc., 217

ee” 8 Uh, Bt.) Pee eer eer eeer Terr rer ress 7,8

Northern Pacific R. Co. v. Ellis, 144 U.S. 458, 36 L.Ed. 504,

re ie er 2. Sern eee Pree re 4,5

Organization for a Better Austin v. Keefe, 402 U.S. 415

EPRI ons cancun cnpasaenxs ss $Adeacee tema ces 4

Pennsylvania v. Ritchie, 480 U.S. ___, 94 L.Ed.2d 40, 51,

108 S.Ct. Lf eee Pe eee re tor. Cr ee 9,10

People v. Shuey, 13 Cal.3d 835, 120 Cal.Rptr. 83, 533 P.2d

iii ic! een e ween ery erry ee rr ee ee tay 9

Perry v. Thomas, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) 10

Richmond v. Dart Industries, Inc., 29 Cal.3d 462, 174

Cal. Rote. SiS, G29, P26 ZS: CIGC1) inc cence aces dnwess 12

Roberts v. Cooper, 61 U.S. 467, 15 L.Ed. 969, 20 How. 467

i | SEDO rn, onto Pg Gear CMe parr sare tara, tee ee 8

Roberts v. Northern Pacific R. Co., 158 U.S. 1, 39 L.Ed.

Cea UE ae Ooo ns cae es iro soe es 5

Sanserino v. Shamberger, 245 Cal.App.2d 630........... 12

Southland Corp. v. Keating, 456 U.S. 1 (1984).......... 2, 6

Street v. New York, 394 U.S. 576, 22 L.Ed.2d 572, 89 S.Ct.

ke.) ee oh ndash 21k es a a nena a ed 4

Tally v. Ganahl, 151 Cal. 418, 90 P. 1049 (1907)........ 9

Zahn v. International Paper Co., 414 U.S. 291 (1973).... 12

Statutes

California Code of Civil Procedure:

ae DP eeerrerrr ate ooeierarr nik yr: E 12

ge: & Sn om er rrer yer rr ar. t 10

wie beet |S... chee 9,10

iv

TABLE OF AUTHORITIES CITED

Texts

Page

Moore’s Federal Practice § 0.404[1], pp. 117-120 (2d ed.

SOD Gs dec hyd donee udu be weueese cet carteen es 8

Moore’s Federal Practice 9 511.01, pp. 8-65—8.66 (2d ed.

cn MERE ETLETEET EELS OEEe e ee er PES Pree 4

9 Witkin, Cal. Procedure, Appeal (3d ed. 185):

eM sik sd vos 64 och v0 aw ewe eae Ooh SaaS eee 10

Rie ae ad's do has che ted ERS aaa 10

Ee ME ho ae 2's Kins 0d 65% detee nnd ereweeks 9

ee TIE OO np ied sd duxéuh Se hUdad doen eta, 7

TN 6 55 6:65.95s 4 oaks CERO cae ea 7

Wright, Miiler, Cooper & Grossman, Federal Practice and

Procedure: Jurisdiction § 4022, pp. 701-703 ........... 4

No. 87-1746

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1987

THE SOUTHLAND CORPORATION, et al.,

Petitioners,

.

RICHARD D. KEATING, et al.,

Respondents.

RESPONDENTS’ BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI TO THE

SUPERIOR COURT OF THE COUNTY OF

ALAMEDA, CALIFORNIA

I.

INTRODUCTION

Southland’s petition for certiorari completely distorts the pos-

ture of the case. The California courts have not “acted contrary to

this Court’s mandate” (Petition, p. 1), nor have respondents

“contradicted what they had represented to this Court” (Petition,

p. 7), engaged in a “ruse” (Petition, p. 12), or attempted to

manipulate the Court’s procedures (Petition, p. 9). Briefly stated,

this is what happened:

On the first appeal, the parties were asked by the clerk of the

state court of appeal what law, state or federal, should govern the

issue of whether there can be classwide arbitration. Southland

responded that California law applied. Southland did not claim in

either that court or in the California Supreme Court that class-

wide arbitration was barred by the Federal Arbitration Act.

2

Southland raised that issue for the first time on certiorari to this

Court, which refused to hear it on the ground that it had not been

raised in or decided by the California courts.’ The case was

remanded “for further proceedings not inconsistent” with this

Court’s opinion. Southland Corp. v. Keating, 465 U.S. 1, 17

(1984).

On remand, the superior court refused to reconsider the propri-

ety of class arbitration as a federal issue instead of a state issue, on

the grounds that, under California law, Southland raised the

argument too late. The decision of the California Supreme Court

on the first appeal was now the law of the case. Under California

law, that doctrine applies not only to matters actually considered

and decided on a prior appeal, but to any matter essential to the

decision and in that sense “impliedly” decided. Having deliber-

ately chosen to rely solely on state law on the first appeal,

Southland was held barred on remand from recharacterizing the

issue as one of federal law. Applying California law as enunciated

by the California Supreme Court in its opinion on the first appeal,

the superior court ordered classwide arbitration. Southland’s ap-

peal from that decision was dismissed because the order, being

interlocutory, is nonappealable, and Southland’s application for a

' This Court’s decision expressly recognized that: .... Southland did

not contend in the California courts that, and the state courts did not

decide whether, state law imposing of class-action procedures was

preempted by federal law. When the California Court of Appeal directed

Southiand to address the question whether state or federal law con-

trolled the class-action issue, Southland responded that state /aw did not

permit arbitrations to proceed as class actions, that the Federal Rules of

Civil Procedure were inapplicable, and that requiring arbitrations to

proceed as class actions ‘could well violate the [federal] constitutional

guaranty of procedural due process.’ Southland did not claim in the

Court of Appeal that if state law required class-action procedures, it

would conflict with the federal Act and thus violate the Supremacy

Clause.

Southland Carp. v. Keating, 465 U.S. 1, 8 (1984).

In the California Supreme Court, Southland likewise argued that

California law applied and did not oppose class certification on federal

grounds. /bid. oe

Ee Oe

3

writ was denied. The California Supreme Court declined discre-

tionary review.

In that posture, Southland once again seeks review of the same

federal question that this Court refused to hear the first time. It is

elementary that in order to maintain jurisdiction in this Court on

the ground that a state court has denied a federal right, it is

necessary to satisfy the requirements of state procedure for

presenting the federal question in a timely and proper fashion.

Ordinarily, the federal issue is presented too late in the state

courts if it is raised for the first time on appeal. A fortiori, it is too

late when raised for the first time on remand io the trial court

following appeal.

II

ARGUMENT

A. There Is No Jurisdictional Basis for the United States

Supreme Court to Review the Order

Southland’s petition for certiorari attempts to present the issue

whether California’s classwide arbitration procedure is preempted

by the Federal Arbitration Act. There are two reasons why that

issue may not be considered at this juncture: (1) the California

Superior Court did not decide the purported federal issue posed

by Southland but based its order upon adequate and independent

state grounds, and (2) the order is not final for purposes of United

States Supreme Court review.

1. The California Superior Court Did Not Reach The Fed-

eral Issue Posed by Southland, But Rested Its Decision

Upon Adequate and Independent State Grounds

In its statement of decision issued with its order, the superior

court held as follows:

Southland has argued to this court that the permissibility

of class arbitration is governed by the Federal Arbitration

Act. The court declines to consider this argument because

the doctrines of invited error and law of the case preclude

Southland from raising such argument at this point in these

4

proceedings. This court has therefor determined the propri-

ety of class arbitration under state law.

It is a fundamental rule that this Court will not review state

court judgments that rest on adequate and independent state

grounds. Herb v. Pitcairn, 324 U.S. 117, 125, 89 L.Ed. 789, 794,

65 S.Ct. 459 (1944); see 12 Moore’s Federal Practice, 4 511.01,

pp. 8-65—8-66 (2d ed. 1982), and cases there cited. In order to

maintain jurisdiction on the ground that a state court has denied a

federal right, it is necessary to satisfy the requirements of state

procedure for presenting the federal question at the right time and

in the nght way. “[W]hen... the highest state court has failed to

pass upon a federal question, it will be assumed that the omission

was due to want of proper presentation in the state courts, unless

the aggrieved party in this Court can affirmatively show the

contrary.” Street v. New York, 394 U.S. 576, 582, 22 L.Ed. 2d

572, 579, 89 S.Ct. 1354 (1969).

Ordinarily the federal issue is presented too late if it is raised

for the first time on appeal. Bailey v. Anderson, 326 U.S. 203,

205-207, 90 L.Ed. 3, 66 S.Ct. 66, 68 (1945); Memphis Nat. Gas

Co. v. Beeler, 315 U.S. 649, 650-651, 86 L.Ed. 1090, 62 S.Ct. 857,

859-860 (1942); Mutual Life Ins. Co. v. McGrew, 188 U.S. 291,

47 L.Ed. 480, 23 S.Ct. 375 (1903); see discussion in Wright,

Miller, Cooper & Grossman, Federal Practice and Procedure:

Jurisdiction § 4022, pp. 701-703. This is an fortiori case because

Southland raised the federal preemption issue in the California

courts for the first time on remand after the first appeal. At that

time it was clearly too late.

An almost identical situation was presented in Northern Pacific

R. Co. v. Ellis, 144 U.S. 458, 36 L.Ed. 504, 12 S.Ct. 724 (1891).

In that case, plaintiff Ellis had sued the railroad in Wisconsin

state court to quiet title to a parcel of real estate on the basis that

a deed from the county to the railroad was void as an ultra vires

gift. The Supreme Court of Wisconsin affirmed a judgment for

plaintiff. On remand for further proceedings in the trial court, the

railroad sought to rely as a defense upon a recent decision of a

federal court on the same issue between the same parties, but

affecting a different parcel of land. Relying on federal law, that

court had found that a similar deed from the county to the

5

railroad was valid. Roberts v. Northern Pacific R. Co., 158 U.S. 1,

39 L.Ed. 873 15 S.Ct. 756 (1894). The Wisconsin trial court

refused to consider that federal issue, and entered judgment in

favor of Ellis. The railroad company again appealed to the

Wisconsin Supreme Court, which affirmed on the ground that its

prior decision (in which the federal issue had not been raised)

was now the law of the case. The railroad petitioned the Supreme

Court of the United States for a writ of error. The Supreme Court

dismissed the writ. Chief Justice Fuller wrote:

the decision of the Supreme Court of Wisconsin rested upon

an independent ground not involving a federal question and

broad enough to maintain the judgment. [ Citation. ]

The Supreme Court held that by reason of its decision [on

the first appeal]..., the rights of the parties were res

adjudicata, and that it was itself, as the parties were, bound

by its own former judgment. Its conclusion had been an-

nounced and its mandate had gone down, and it had no

power upon a second appe.! to review that judgment....

Under these circumstances the judgment of the [ Wisconsin ]

Supreme Court is not subject to review here.

... The judgment before us was rendered in accordance

with well settled principles of general law, not involving any

Federal question, ....

144 US. at 464-465.

The only difference between that situation and the case at hand

is that here there was a petition to the United States Supreme

Court after the first appeal as well as after the second. In other

respects, the posture of the cases appears to be identical. The

Supreme Court will not consider a federal issue which the state

courts have never considered because of their own application of

the doctrine of the law of the case. This limitation on Supreme

Court review is clearly applicable here.

6

2. Southland Is Prohibited by California Law From

Changing Its Position From That Taken in the First

Appeal

Southland argues that the federal question was properly raised,

and that the superior court erred in its application of the law of

the case doctrine.* This argument is premised upon the assertion

that plaintiffs have changed their position from contending, when

the case was previously before this Court, that the California

courts did not decide the federal preemption issue to now con-

tending, under the law of the case doctrine, that it was decided.

Petition, pp. 11-14. This is a fallacious argument based upon a

distortion of what occurred and a misrepresentation of plaintiffs’

position.

Plaintiffs have never contended that the California courts in

fact decided the federal preemption issue during the first appeal.

The California courts clearly did not consider the question for the

reason that Southland never raised it and, when asked, advised

the California courts that state law prevented classwide arbitra-

tion and that the Federal Rules of Civil Procedure did not apply.

Southland Corp. v. Keating, supra, 465 U.S. at 8; footnote 1,

supra.

What plaintiffs have said is that the California law of the case

doctrine applies not only to questions expressly decided on a prior

appeal, but to those that were essential to the decision and in that

sense “impliedly” decided. See plaintiffs’ Reply to Defendant's

Opposition to Motion for Class Certification, August 22, 1986,

p. 4, citing Estate of Horman, § Cal. 3d 62, 73, 95 Cal. Rptr. 433,

443, 485 P.2d 735 (1971). There is no inconsistency between the

indisputable proposition that the California courts did not decide

the federal preemption issue on the first round of appeals (be-

Cause it was not raised) and the contention that the law of the

case doctrine now bars Southland from raising the issue because

it was essential to the California Supreme Court's first decision.

* Whether this is so is, of course, a question of state law which has yet

to be addressed by the California appellate courts.

-

The California Supreme Court held on the first appeal that,

provided certain criteria were met, arbitration proceedings could

be conducted in this case on a classwide basis. Keating v. Superior

Court, 31 Cal. 3d 584, 613-614 (1982). It was essential to that

holding that classwide arbitration was not somehow barred by

federal law. The law of the case doctrine under California law

applies to matters which were essential to the decision even

though not raised. Gore v. Bingaman, 20 Cal. 2d 118, 124 P.2d 17

(1942); Davis v. Edmonds, 218 Cal. 355, 23 P.2d 289 (1933);

Nevcal Enterprises, Inc. v. Cal-Neva Lodge, Inc., 217 Cal. App.

2d 799, 804-805 (1963); see cases collected at 9 Witkin, Cal.

Procedure, Appeal, § 754, p. 722 (3d ed. 1985).° The superior

court therefore was correct in ruling that the doctrine bars

Southland from raising a federal preemption issue that it had the

opportunity to raise, but did not raise, on the previous appeai.*

California unquestionably has a legitimate interest in applying

its law of the case doctrine. The doctrine has also generally been

followed in the federal courts, where it is thought to serve “the

dual pupose of: (1) protecting against the agitation of settled

* Southland’s exposition of California law at page 12 of its Petition is

superficial. While it is the general rule that the law of the case doctrine

does not extend to matters which might have been but were not

presented and determined on a prior appeal (9 Witkin, Cal. Procedure,

Appeal, § 753, p. 721 (3d ed. 1985)), that general rule is subject to an

important exception where the particular point was essential to the

decision. Id., § 754, p. 722. The Gore, Davis and Nevcal cases cited in

the text above are cases applying that exception. Southland relies on the

general rule without even mentioning the exception, or attempting to

distinguish those cases, although plaintiffs have relied upon the excep-

tion at each stage of these proceedings.

*The superior court in this case based its refusal to consider the

federal preemption issue on the doctrines of law of the case and invited

error. It was probably also justified on the basis that Southland’s conduct

in the state court of appeal during the first appeal constituted a waiver of

any claim that the Federal Arbitration Act prevented classwide arbitra-

tion. See, e.g., Davis v. Edmonds, supra, 218 Cal. 355, 358, and Henry v.

Mississippi, 379 U.S. 443, 450, 13 L.Ed. 2d 408, 414, 85 S.Ct. 564

(1965).

8

issues; and (2) assuring the obedience of inferior courts to

decisions of superior courts.” 1B Moore’s Federal Practice

q 0.404[1], pp. 117-120 (2d ed. 1984), and cases there cited. As

in the California courts, the federal law of the case doctrine

prohibits a party who omits argument on a point of law necessarily

involved in the disposition of an appeal from presenting it on a

second appeal. /bid, | 0.404[1], p. 120, n. 15. As this Court

observed long ago, “To allow a second writ of error or appeal to a

court of last resort on the same questions which were open to

dispute on the first, would lead to endless litigation.” Roberts v.

Cooper, 61 U.S. 467, 15 L.Ed. 969, 973-974, 20 How. 467, 481

(1858).

The same point has been made more recently by a California

appellate court in applying the law of the case doctrine:

Furthermore, it is of no consequence that the point in

question was not raised by counsel on the prior appeal or

expressly mentioned. [Citations] ...[1]t becomes immate-

rial that the lower court upon the first trial did not choose to

determine the precise legal issue. The controlling factor here

is that the reviewing court did so choose—impliedly at the

very least, if not expressly—in order to reach the result which

it did.

NevCal Enterprises v. Cal-Neva Lodge, Inc., supra, 2\7 Cal. App.

2d at 805.

There is thus no inconsistency between plaintiffs’ representa-

tion to this Court on the first appeal that the California courts did

not consider the federal preemption issue and their position that

the law of the case doctrine bars Southland from raising it now.

After inviting the California courts to treat the class arbitration

issue as One of state procedure and then losing on that issue,

Southland may not now claim that the issue should have been

decided under federal law. It is Southland, not plaintiffs, that has

done “a 180 degree turn” (Petition, p. 11) and seeks to “have it

both ways (Petition, p. 13).””

* Southland makes several other specious arguments as to why the law

of the case doctrine does not apply or is not a bar to review by this Court.

ee ee

9

3. The Order Is Not Final for Purposes of United States

Supreme Court Review

Under 28 U.S.C. § 1257, this Court has jurisdiction to review

only final judgments or decrees rendered by the highest court of a

state in which a decision can be had.° The finality requirement

normally is not satisfied if the state courts still must conduct

further substantive proceedings before the parties’ rights as to

federal issues are resolved, and this Court ordinarily has no

jurisdiction to review an interlocutory judgment. Pennsylvania v.

First, Southland asserts that the doctrine is merely a “discretionary rule”

in California rather than a jurisdictional requirement. Petition, p. 13,

n. 11. The California Supreme Court has made it clear, however, that

state appellate courts are not free to disregard a prior appellate determi-

nation in the case unless it is at least demonstrated that such would

result in a “manifest misapplication of existing principles resulting in

substantial injustice.” People v. Shuey, 13 Cal. 3d 835, 846, 120 Cal.

Rptr. 83, 533 P.2d 211 (1975). Southland also suggests that the doctrine

is not to be applied to “pure questions of law.” Petition, p. 13. However,

principles of law are exactly what the law of the case doctrine does apply

to. Tally v. Ganahl, 151 Cal. 418, 421, 90 P. 1049 (1907). See 9 Witkin,

Cal. Procedure, Appeal, § 737, pp. 705-706 (3d ed. 1985). Finally,

Southland says that the doctrine is inapplicable here because intervening

cases have changed or significantly clarified tha law. Petition, p. 13, n.

12. However, the California Supreme Court’s decision in this case on

the permissibility of classwide arbitration has not been changed or

clarified; to the contrary (as Southland itself acknowledges in its

Petition), the prior decision has been followed and applied by the

California appellate courts. /zzy v. Mesquite Country Club, 186 Cal.

App. 3d 1309, 231 Cal. Rptr. 315 (1986); Gainey v. Occidental Land

Research, 186 Cal. App. 3d 1051, 231 Cal. Rptr. 249 (1986); Lewis +

Prude’ tial-Bache Securities, 179 Cal. App. 3d 935, 225 Cal. Rptr. 69

(198:

* Contrary to Southland’s assertion at page 9 of its Petition, respon-

dents do not contend that the Court lacks jumsdiction merely because

the order at issue was entered by a tnal court. Rather, respondents

contend that this Court lacks junsdiction because the order was interloc-

utory, and because the California appellate courts, having declined to

review it for that reason, will have an opportunity to do so upon the

appeal that Southland will have the mght to take from a judgment

confirming an arbitration award.

10

Ritchie, 480 US. —

(1987).

, 94 L.Ed. 2d 40, 51, 108 S.Ct. ___

As Southland acknowledges, the court of appeal granted plain-

tiffs’ motion to dismiss Southland’s appeal after plaintiffs pointed

out that orders directing parties to arbitrate are interlocutory and

nonappealable. See 9 Witkin, Cal. Procedure, Appeal, § 71, p. 95

(3d ed. 1985), and cases there cited. Under California law, such

orders are reviewable on appeal from a judgment confirming the

arbitration award. /d.; see Cal. Code Civ. Proc. §§ 1294, 1294.2.

On such an appeal, Southland would be entitled to challenge the

superior court’s application of the law of the case and invited error

doctrines and, should it agree with Southland’s position on these

state law issues, the California Court of Appeal presumably would

then consider the federal issue whether classwide arbitration is

preempted by federal law.’ Only such a decision would be final for

purposes of 28 U.S.C. § 1257. This Court lacks jurisdiction—not

because the state appellate courts declined to review the order at

this juncture—but because under state procedure Southland has a

remaining appeal as of right.”

California Code of Civil Procedure, section 1294.2—which governs

appeals from judgments confirming arbitration awards—provides in part:

“Upon an appeal from any order or judgment under this title, the court

may review the decision and any intermediate ruling, proceeding, order

or decision which involves the ments or necessarily affects the order or

judgment appealed from, or which substantially affects the mghts of a

party.”

“The cases cited by Southland at page 10 of its Petition are not

inconsistent with this proposition. In Perry vo Thomas, 107 S.Ct. 2520,

96 L.Ed. 2d 426 (1987), this Court reviewed a California Court of

Appeal’s decision allirming a superior court order denying a petition to

compel arbitration. Unlike orders directing parties to arbitrate, orders

denying petitions to compel arbitration .are appealable in California. 9

Witkin, Cal. Procedure, Appeal, § 72, p. 96 (3d ed. 1985), and authon-

ties there cited. Thus, once the California Supreme Court denied

discretionary review, the court of appeal’s decision in Perry was the

decision of the highest state court in which a decision could be had.

There is no indication in Belknap, Inc. v. Hale, 463 U.S. 491 (1983),

that the petitioner had a remaining appeal as of mght to the state courts

Southland to the contrary, this case does not come within the

exception described in Cox Broadcasting Corp. v. Cohn, 420 U.S.

469, at pages 482-485, 43 L.Ed.2d 328, 95 S.Ct. 1029 (1975).’

That exception applies to situations in which a state court has

written an opinion denying a federal right or claim, which opinion

would otherwise remain on the books as precedent unless imme-

diately reviewed by the United States Supreme Court, thus

eroding federal policy. /d. at 485. There is no such decision here.

The California courts have decided a procedural issue—the pro-

priety of classwide arbitration—under state law. The California

courts have not addressed the contention that the Federal Arbi-

tration Act prohibits classwide arbitration. That contention has

not been considered because under state law Southland is es-

topped to raise it. There is no precedent on the merits of the issue

which could “erode federal policy” and thus no basis for an

exception to the general rule that interlocutory judgments are not

reviewable by this Court.

B. The Question Does Not Merit Review by This Court

The California courts have not addressed the federal question

which Southland seeks to raise. Accordingly, this case does not

present any federal question at all. But even if the issue Southland

seeks to raise were present, it would not be a substantial issue.

Southland’s argument—that classwide arbitration is strictly pro-

hibited by the Federal Arbitration Act—is not based on any

language in that Act nor upon any federal case that has consid-

ered the point. Rather, it is a variant of the same argument that

Southland has made all along, namely, that there is something

Organization for a Better Austin v. Keefe, 402 U.S. 415 (1971), involved

a prior restraint om free speech, and first amendment rights would have

been irretrievably lost if the court had declined to review the ruling of

the highest Illinois court on the temporary injunction.

"The Cox case describes four categories of cases in which the

Supreme Court will review state court decisions on federal questions

even though further state court proceedings are pending. None of the

four is appli able here because each is predicated on there having been a

final determination of the federal issue by the state court. 420 U.S. 469,

477. That initial predicate is lacking here because the California courts

in this case have thus far declined to decide the federai issue.

12

fundamentally inconsistent between class action procedure and

arbitration, that like fire and water, they cannot coexist. The

California Supreme Court rejected that argument when it was

preserited as a question of state law on the first appeal. Keating v.

Southland Corp., 31 Cal.3d 584 (1982). The argument is no more

persuasive when premised on the Federal Arbitration Act than on

California law. The California statute and policy is as pro-

arbitration as is the federal statute and policy.'°

There is no basis for this Court to declare that class action

procedure and arbitration are inherently irreconcilable in their

goals or implementation. Class actions are considered important

by both the federal and California courts.'' Class actions serve an

important function in our system of civil justice by allowing

vindication of small claims which might otherwise go unprose-

cuted because the result would be consumed by the cost. Gulf Oil

Co. v. Bernard, 452 U.S. 89, 99 (1981). Class actions involving

such claims are of special concern to state courts since only those

individual claims exceeding $10,000 are within federal diversity

jurisdiction. Zahn v. International Paper Co., 414 U.S. 291

(1973).

Southland’s interpretation of the Federal Arbitration Act would

eliminate the class action device as a procedure for resolving

claims encompassed within standardized contracts containing an

arbitration clause. This would have far reaching effects. Any

corporation in interstate commerce could insulate itself from

liability for classwide wrongs simply by including an arbitration

clause in all of its contract forms. We do not believe that the

"The California statute is set forth at California Code of Civil

Procedure, sections 1280 et. seq. See also Morris v. Zuckerman, 257

Cal. App. 2d 91, 95 (1967) [The arbitration statute “reflect[s] the

strong legislative policy favoring arbitration” ]; Sanserino v. Shamberger,

245 Cal. App. 2d 630, 635 [“Since arbitration is favored... every

intendment will be indulged to give effect to such proceedings” J.

'' Gen. Tel. of Southwest v. Faicon, 457 U.S. 147, 72 L.Ed. 2d 740,

102 S.Ct. 2364 (1982); American Pipe & Construction Co. v. Utah, 414

U.S. 538, 551 (1974): Richmond v. Dart Industries, Inc., 29 Cal. 3d 462,

469, 174 Cal. Rptr. 515, 629, P.2d 23, 27 (1981).

13

Federal Arbitration Act was ever intended to be used by parties of

superior bargaining power to achieve such an unjust result. There

is nothing in the nature or purpose of the Act to prevent a state, in

managing its own dockets and procedures, from neutralizing such

an unfair tactic. :

CONCLUSION

For the reasons stated above, Southland’s Petition should be

denied.

Respectfully submitted,

JOHN F. WELLS*

Davib A. SCHURICHT

STARK, WELLS, RAHL, FIELD

& SCHWARTZ

Lake Merritt Plaza

1999 Harrison Street, Suite 1300

Oakland, California 94612

(415) 834-2200

Lis—E A. PEARLMAN

MILLER, STARR & REGALIA

One Kaiser Plaza, Suite 1600

Oakland, California 94612

(415) 465-3800

Attorneys for Respondents

*Counsel of Record

Dated: May 20, 1988